Which industries in China are state-run

China's big leap to high-tech power

The state and party leadership in Beijing regularly invokes international rules in the current trade dispute with the USA and likes to present itself abroad as a completely normal player on the global economic stage. But in their economic policy, the decision-makers in the Middle Kingdom like to fall back on planned economy instruments. So it's no wonder that the strategy for developing one's own economy comes along in grand plans, the decisive one being "Made in China 2025".

In 2015, the strategy paper listed ten key areas in which China aims to be an international leader by 2025. The spectrum is wide: it ranges from aerospace to industrial robots and the development of industrial software to high-speed trains. In addition, there is the rapid expansion of electromobility, the modernization of the Chinese power grids and the development of a globally competitive medical technology and semiconductor industry.

Many of these industries are those in which German companies are leaders or - in the case of high-speed trains - were leaders. Beijing has dealt intensively with the German future concept of Industry 4.0. But unlike in Germany, the Chinese digitization initiative does not come from the economy, but from the state and party leadership. And every two years, what has been achieved is put to the test by the decision-makers in the capital and readjusted if necessary.

The more industrialized a country is, the more its economy is at risk

For CDU MEP Daniel Caspary, it is high time that European companies with sensitive cutting-edge technology are better protected: "If the Chinese leadership has committed itself to ten economic sectors where it wants to be at the forefront, then the strategy is how it is One point is: How can we withdraw know-how in these countries. The second point is: How can we, as a Chinese state or as a Chinese company, invest specifically in these companies in order to withdraw know-how. "

Caspary is therefore trying to get European legislation off the ground. "We are now experiencing this at KUKA in Augsburg, where it was initially said that everything will remain as it is. Now we are seeing that a much larger number of jobs than originally announced are being cut in Germany and relocated to China. We are now seeing the entry at Daimler: ten percent! A thing that worries me tremendously. You don't just get ten percent into one of the best, largest automobile manufacturers, but of course you have strategic goals. And these are things that we have to answer . "

Problem area semiconductors

In the telecommunications sector, high-speed railways and power generation systems, the planners in Beijing already see themselves as far ahead. "China sees itself well on the way to becoming one of the world's leading manufacturers of robotics and alternative-powered vehicles by 2025. The problem children are still the semiconductor industry and the area of ‚Äč‚Äčindustrial software," says Jaqueline Ives from the Mercator Institute for China Studies ( MERICS) in Berlin in conversation with DW.

Got into trouble because of the US ban? ZTE Research Center in Shanghai

The Chinese are feeling particularly strong headwinds from the USA when building a leading global semiconductor industry, especially when it comes to planned acquisitions of US companies in the chip industry. In mid-April, the US imposed a seven-year ban on the Chinese wireless communications company ZTE, which bans US companies from supplying ZTE with components such as chips. The US Senate voted on June 18 for another ban on sales of important high-tech goods from the US to the company. The senators voted 85 to ten for a bill to reintroduce this blockade. The Senate's decision contrasts with Trump's efforts to reach an agreement with ZTE in the midst of overtures between Beijing and Washington in the trade dispute since early June - in exchange for a fine of $ 1.4 billion. .

Most recently, ZTE had even replaced its board of directors at the end of June in order to put the decision-makers in the US to a milder mood, as the British IT magazine "The Register" reported. Accordingly, the previous 14-member board has been replaced by a director team with eight members. The new members are unencumbered by the decisions that led to the trade sanctions against ZTE.

In the USA, takeover attempts have recently failed, such as the purchase of the US chip manufacturer Qualcomm by the semiconductor company Broadcom, which has been controlled by the Singapore-Chinese since 2015, for 146 billion US dollars. US President Donald Trump himself had banned the sale because he saw the national security interests of the US threatened by the technology transfer to Asia. In the meantime, the company's headquarters have been relocated from Singapore back to the USA - not least because Broadcom is once again a US company that can take over other US companies in this way.

US President Donald Trump recently seemed to want to refrain from cracking down on Chinese investments in US technology companies. Signals that the White House is primarily relying on a revision of existing rules were, however, called into question again at the end of June by statements from Trump's environment. Trump's economic advisor Larry Kudlow had contradicted the impression on the US news broadcaster Fox that the president was taking a milder stance towards China's entry into US high-tech companies. Kudlow announced a "very comprehensive and very effective" approach.

Trump had previously announced in a statement that Congress had already made significant progress in legislation to protect US technologies from harmful takeovers from abroad. However, should it fail to better protect "the crown jewels of US technology" and intellectual property from acquisitions that threaten national security and the economy, stricter measures will be ordered.

The semiconductors show how carefully planned China is proceeding. According to information from the Bloomberg news agency, the Chinese government intends to loosen an additional 25 billion euros in 2018 for the state-controlled "China Integrated Circuit Industry Investment Fund" in order to swallow high-tech companies from the chip sector worldwide. After seeing how ZTE's value chain was in massive danger due to the US supplier ban, the government is also trying to cushion the effects as much as possible - for example through retroactive tax cuts for domestic chip manufacturers, according to Ives.

However, semiconductors are also sensitive for Western governments and companies because they play a key role in the arms industry. Without them, even nuclear powers like China will reach their limits in the development of new weapon systems - not to mention the aerospace industry. In addition, when setting up modern data networks with the fast 5G standard for autonomous driving or the networking of smart factories, the Chinese government is still dependent on technical knowledge and the purchase of components from semiconductor manufacturers abroad. The failed Qualcomm takeover was therefore a major setback.

International research for China

Beijing has readjusted its artificial intelligence (AI). The expansion of this key technology to a market size of almost 20 billion euros, demanded by the central government, is being exceeded by the plans of ambitious economic politicians in individual provinces and metropolises: They want to more than double this target by 2022.

At the same time, this is one of the Achilles heels of the state-imposed industrial policy: To please the headquarters in Beijing, ambitious decision-makers in the provinces add a shovel and often overshoot the mark. Overcapacities are the result, through which the newly established companies are engaging in ruinous competition, as happened in the solar industry.

Global research network

In order to have access to the knowledge of international IT experts and hardware developers, the telecommunications company Huawei maintains more than a dozen research centers all over the world. The electric car manufacturer NIO, which was only founded in 2014, has mixed Chinese and non-Chinese teams working on prototypes and new battery technologies at 30 locations around the world. The IT companies Baidu, Tencent and Didi maintain research centers for AI in Silicon Valley. And the mega-corporation Alibaba, once founded as a Chinese clone by Amazon and Ebay, plans to invest more than 10 billion euros in its research offensive in the coming years, in collaboration with top researchers at selected US elite universities. Alibaba alone employs 25,000 engineers and scientists worldwide, according to MERICS.

In addition, it is increasingly common for top executives with Chinese roots trained in the West to return to the Middle Kingdom to further advance their research. And for many, it's not just about money, says Jaqueline Ives: "Many believe that they can live out their creativity more in China. For example, because regulations and laws are applied more flexibly in China to give new technologies space to adapt quickly and dynamically develop." This also applies increasingly to Western experts who go to China, "because they feel that they have a free hand in their field and can let off steam."

Fight for supremacy in artificial intelligence

It was only in the fall of 2017 that Eric Schmidt, head of Google's parent company Alphabet, warned at a conference in Washington of the impending dominance of China in the field of artificial intelligence. The country wants to overtake its international competitors in terms of technology and be a world leader by 2030. In less than 12 years, according to the specification from Beijing, the domestic AI industry should have a volume of around 125 billion euros. For Schmidt anything but unrealistic: "Believe me, these Chinese are good," the Alphabet boss announced to the decision-makers from politics, business and the military in Washington.

Test vehicle for autonomous driving by the Chinese internet giant Baidu in Beijing

China wants to set the standards in the future

China aims to set industrial standards in the Middle Kingdom in the future. No country is investing more money in research; Chinese research spending is already higher than that of the USA. In 2016, according to MERICS, 2.1 percent of the Chinese gross domestic product (more than 230 billion dollars) went into research and development; in 2020 it should be 2.5 percent.

But even China will not achieve all of its goals, says Jaqueline Ives. "The claim to automate and digitize the entire Chinese economy is very, very ambitious. Many factories in China are perhaps just at Industry 2.0 level. It will be of no use to them to acquire highly developed technology for intelligent production. There are just a discrepancy between the ambitious goal of the government and the actual needs of many local companies. "

This article is from May 11th, 2018 and was updated on July 3rd, 2018.